Good day, and thank you for standing by. Welcome to the Valneva Half Year 2023 Financial Results Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Joshua Drumm, VP, Global Investor Relations. Please go ahead, sir.

Thank you, [Vatia]. Hello and thank you for joining us to discuss Valneva's first half 2023 results and corporate update. It's my pleasure to welcome you today. In addition to our press release and analyst presentation, you can find our consolidated financial results for the six months ended June 30, 2023, which were published earlier today, available within the Financial Reports section on our Investor website. As always, I'm joined today by Valneva's CEO, Thomas Lingelbach; and CFO, Peter Buhler, who will provide an overview and update of our business, as well as our key financial results for the first half of the year. There will be an analyst Q&A session at the conclusion of the prepared remarks. Before we begin, I'd like to remind listeners that during this presentation, we'll be making forward-looking statements, which are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed or implied by these forward-looking statements. You can find additional information about these risks and uncertainties in our periodic filings with the Securities and Exchange Commission and with the French Market Authority, which are listed on our company website. Please note that today's presentation includes information provided as of today, September 21, 2023, and Valneva undertakes no obligation to revise or update forward-looking statements except as required by applicable securities laws. With that, it's my pleasure to introduce Thomas to begin today's presentation.

Thank you so much, Josh. A very good day everyone. Pleasure for me to report our half year one achievements. When we look at R&D, we made substantial progress towards the potential FDA approval of the world's first chikungunya vaccine. We have online now the Cohort 1 of the Phase 3 VALOR study completing its first tick season, and the Cohort 2 is currently enrolling, and I will provide more details around that. We decided to reinitiate our Zika vaccine development with an expected clinical trial start early next year. Again, I will provide more details around this. When we look at the commercial business, we are very pleased with the commercial performance. Our product sales of almost €70 million have more than doubled as compared to prior year excluding all the COVID sales, of course, and hence we are on track to meet our 2023 sales guidance of €130 million to €150 million. We had a strong cash position at the end of June with more than €200 million and very recently further strengthened it by an up to $100 million new supplementary debt facility. When we look at the business in detail, let me start with our chikungunya vaccine, which is a live-attenuated vaccine candidate currently under FDA priority review. It is the first chikungunya vaccine candidate in the world that reported positive Phase 3 data with all trial endpoints met. It's the first chikungunya candidate that has an ongoing BLA application with potential approval and a filing accepted by Health Canada. By way of reminder, our live-attenuated approach was chosen because we wanted to go for a single-shot vaccine that was particularly well suited to target a long-lasting protection compared to other chikungunya assets currently being evaluated in clinical trials. Our results have demonstrated that our initial…

Thank you, Thomas, and good morning and good afternoon to all of you. Now, let's look at the financial review of the first half of fiscal year 2023. Product sales reached €69.7 million and grew 109% over prior year. At constant currency, product sales grew 113.6%. The strong growth is driven by all product lines, with IXIARO growing at 150% at constant currency, DUKORAL at 213%, and third-party products at 46.8%. This excellent sales performance is primarily driven by the recovery of the private travel market, but also by price increases across the board. In the first half year, we also still recorded residual COVID-19 vaccine sales related to a pre-existing contract with the Kingdom of Bahrain. Moving on to the income statement. Total revenues reached €73.7 million versus €93.2 million in the first half year of 2022, a decrease of 20.9%. In the prior year, Valneva had recognized other revenues related to its COVID program, which explains this decrease. Looking at expense, we observed a significant decrease in cost of goods and services from €171.5 million in the first half of 2022 to €53.8 million in the current fiscal half year - first half year. Prior year's cost of goods and services were heavily impacted by one-off items related to the wind-down of our COVID-19 program. The gross margin of both IXIARO and DUKORAL is still below pre-COVID levels and is amongst others, adversely impacted by IXIARO batch write-offs in our Scottish manufacturing site and high sales volumes in indirect markets, where our average selling price is lower than in direct markets. In the first half year, we also recognized initial cost of goods related to the launch preparation of our chikungunya vaccine candidate. Research and development expense decreased from €51.9 million in 2022 to €26 million in the…

[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Maury Raycroft from Jefferies. Please ask your question.

Hi. Thanks for taking my questions. I was going to ask one on chikungunya. What are your latest thoughts on what a potential Phase 4 outbreak study might look like in terms of size, geographic areas, or any other details? And I'm also wondering, is the outbreak study something that ACIP could potentially want to see for a recommendation or how do you view that study in the context of ACIP?

Hi, Maury. You, of course, will understand that given that we are in the middle of agreeing and aligning the Phase 4 activities with the FDA, there is only very little I can say in public around that. What I can say so, it is under the accelerated approval pathway. We need to show effectiveness in a real-life setting, meaning in endemic countries, and ideally during an outbreak situation. And so, therefore, you need to get prepared for that, and you need to have also different populations included, meaning adolescents, as well as adults. Now, the - historically, ACIP have not been awaiting for - or awaiting final effectiveness data which sometime take many, many years to provide their vaccine recommendations, and at this point in time, we do not expect this to happen. So, we have a strong database that we're going to present, have presented, and will continue to present to ACIP, and that's basically a strong package. More I can at this point in time unfortunately not say, but soon we will, of course, be in a position to explain what we're going to do and then, I hope for your patience until then.

Okay. Yes, makes sense. And I was going to ask one other question about chikungunya. You've talked about the different revenue streams, including travel sales in the U.S. and EU, military and potentially - and potential stockpiling contracts, and then endemic. Can you talk about the potential cadence of the launch in terms of these different revenue streams? How are you preparing currently for the launch? And have you thought of when you might give guidance on sales for some of these groups post-launch?

Yes. That's an excellent question, Maury. So, first of all, I mean, as you know, we have been prioritizing the travel, and let's say, outbreak preparedness in the highly developed countries, so meaning, we started with the U.S. where we see by far the single largest market opportunity in terms of revenue, then followed by Canada and EMA. So, this is the cadence. So, you know that the Canadian filing got accepted. We disclosed that. Next step is, of course, EMA. And then we will go immediately into Brazil. And we are currently looking also into the next most important LMIC territory, which of course is Asia. So, this is probably the cadence of how we're going to approach it from a regulatory and licensure perspective. With regards to outbreak preparedness stockpiling, I mean, there's not a dedicated regulatory process needed for that in the highly developed countries. Having said that, we have a quite significant number of initiatives ongoing to potentially attract a stockpiling business. That this is the part where we felt thus far not very comfortable providing any guidance on how big this opportunity might or might not be, but there is a lot going on and we hope that we will also attract some business in this segment too.

Got it. All right. Thanks for taking my questions.

We are now going to proceed with our next question. And the questions come from the line of Samir Devani from Rx Securities. Please ask your question.

Yes. Hi guys. Thanks for taking my questions. Just a couple really on the numbers. Is this the last of the COVID-19 vaccine orders that we're expecting? And on R&D, can you just maybe explain what would make you come in at the bottom or at the top end of your guidance? Thanks very much.

So on - yes, thanks, Samir, for the questions. So, on COVID-19, there is one - there is some small residual revenue expected still in the second half of the year. But we're mostly done with COVID-19 in terms of revenues. In terms of R&D, yes, great question. And I guess, your question really targets towards the level of spend we see for the first half year compared to the guidance. Obviously, yes, so we do - we - we are tracking to more towards the lower end of the guidance when you look at the first half year of course. And that is - so where we land ultimately is I think to a large extent, of course, driven by you know how much do we still spend on the ongoing trials, in particular on chikungunya, but then also of course, you know, how quickly do we accelerate spend on Zika. So, that's really the key drivers on the R&D spend.

Yes. And in addition to that, Samir, it's also related to when we're actually going to initiate some of the additional studies for chik. You have seen that we have quite a number of studies planned for chikungunya. Of course, we will and can only start some of the studies once we have gotten the approval of the vaccine. So, that's why there is a - there is a couple of swing factors in there, which all - which may affect the final spend, especially with regards to R&D expenses, which we call the direct R&D expenses, meaning external R&D costs with CROs, et cetera, in the fourth quarter of this year.

Great. Thanks very much.

We are now going to proceed with our next question. And the questions come from the line of Simon Scholes from First Berlin. Please ask your question.

Yes, hello. Thanks for taking my questions. I've got two. First of all, I was wondering, on the commercial vaccine business, if you could tell us how much direct sales was in Q2. I think the figure for Q1 was 71.6%. And I was also wondering if you could quantify the batch write-off on IXIARO in Q2. Thanks.

Yes. Thanks. Let's start with the second question on batch write-off whilst we are looking for the number on direct sales. So, you will understand that this is something we are not publishing. I mean, we did have - the reason why we mentioned it is because it was a higher amount than what we usually see, which is really related to the fact that we are basically restarting full steam commercial manufacturing post-COVID. But again, we're not disclosing the actual write-off. In terms of the proportion of direct sales, I need to just look at this. So it was 65% in Q2.

Okay. And would you expect the number to stay around that level -

No, clearly not. I think this was unusually high in both Q1 and Q2, and we would expect for the remainder of the year to get more towards ratios like we saw in the past.

Especially by military kicking in, remember that. Yes.

Okay. Yes. Okay. Thanks very much.

We are now going to proceed with our next question. And the questions come from the line of Damien Choplain from Oddo BHF. Please ask your question. Hello, Damien, can you - your line is open, please ask your question. The next questions come from the line of Damien Choplain from Oddo BHF. Please ask your question.

Yes, hello. Can you hear me?

Loud and clear.

Yes, yes. Thank you for taking my questions. First on Zika, please. So, why do you need to conduct a new Phase 1? Why don't you directly move to - into Phase 2 trial? First question. And what would be the market potential for this vaccine?

Yes. So, let me start to expand a little bit what we're going to do. So, basically, what we - in the Phase 1 study, we saw very nice immunogenicity data. We saw very good safety data. But we did not reach immunological plateau, so which means, we have not yet with the formulation that we used in the Phase 1 study, maximized the potential of the vaccine. So, hence, what we're going to do here is, we're going to update the formulation of the vaccine. We're also going to bring it onto the platform that we further enhanced for VLA2001, because we want to have the platform advantage, and by the end of the day, we want to have a highly differentiated vaccine. We want to have an inactivated vaccine that is going to be best-in-class and therefore, we decided, we could have done a kind of a hybrid Phase 1/2 thing, but we decided that it's better to go for a new Phase 1 protocol, which in reality is a quite a large Phase 1 protocol, but technically it's a Phase 1 protocol. With regards to market size, it is very difficult to quantify at this point in time. And this is also the reason for why we clearly articulated in our H1 report that we're going to have another review time-point on Zika at the end of the next clinical study. There is clearly a huge unmet medical need and we see again, emerging outbreaks around Zika, but for outbreak diseases, it is not trivial to really quantify the market potential and we need to understand three things. Number one, we need to understand, will we be able to deliver a best-in-class vaccine. And you remember that our inactivated approach here follows really WHO guidance, who clearly ruled out certain other technologies for a vaccine that will target vaccination of women in childbearing age and/or pregnant women in an outbreak situation. And the second part is really, we need to understand what is the potential under the - under a normal kind of travel sector's view. And thirdly, is there a possibility to enter into respective partnerships which could help improving the overall financials around it, as we did for Chikungunya with our partnership with CEPI. All that will be further evaluated as we go along. For the time being, as I said, we see a huge unmet medical need. We see the opportunity that Valneva could provide a best-in-class vaccine solution and a vaccine solution that complies fully with the expectations of the medical and scientific community. More, we have to see when we need to decide you know whether - on the basis of data, whether we would proceed then or not.

Maybe just a quick one on your guidance. Can you just confirm that you - it still includes the sale of the potential - PRV in 2023, despite the fact that the approval of the chik vaccine has been delayed?

Yes. Yes, Damien. Thanks for the question. Yes, indeed it still includes the - under other income, we expect - the expected proceeds from the PRV, despite the fact that the PDUFA date is now a bit later.

Okay. Thanks.

We are now going to proceed with our next question. And the questions come from the line of Evan Wang from Guggenheim Securities. Please ask your question.

Hi, guys. Thanks for taking the question. Two from me. First on Lyme. Just with the update, the ongoing trial, I know it's in the hands of Pfizer, but you know, interested here, you know, what the companies are seeing in terms of, you know, incident rate of cases, and you know, Lyme serotypes, both in the Europe and U.S., is it kind of consistent with what you guys are expecting? And second on chikungunya, you know, happy to see some of the durability data showed, or the earlier time point data showed. I was just wondering if there is thoughts on including maybe a subset of patients in either the Phase 4 or other studies to maybe evaluate an earlier time point titer in a larger patient population. Thanks.

Yes. Both excellent questions. Let me start with the second one first, because it's one of the questions that for reasons that you perfectly understand, we are getting all the time onset of immunity. I mean, as I said, we were the first ones to develop the vaccine. We agreed at the time with the authorities on the readout at day 29. Of course, we have a bunch of datasets as we presented today that clearly indicates that the vaccine has a full onset above the seroresponse level very early on. We will - and I mentioned this during my presentation, include those earlier time points as part of studies that we are initiating, be it under Phase 3 or under Phase 4 protocol for sure. And there is absolutely no reason for us not to do this, and there is absolutely no reason to believe that we should not have a fantastic onset of immunity above seroresponse level early on. So, on Lyme itself, Pfizer conducted an EP study in Europe and the U.S. before the Phase 3 study got even initiated. There have been partial disclosures around the results from this EP study at different conferences. Overall, this EP study confirmed the distribution of the different serotypes on the both sides of the Atlantic that we presented at different occasions and that has been - that can be found in literature within reason I would say, and within you know, variabilities but overall no surprises on that front. With regards to the overall case count, that is of course being monitored at this point in time. There's nothing we can say. But also, the EP studies confirm the overall incidence rates that has been used to also power the study. So, so far so good. I would say, everything is working as expected and we have - and Pfizer has no issues in attracting and precluding the respective target population into the study.

Thanks, guys.

[Operator Instructions] Thank you. We are now going to proceed with our next question. And the questions come from the line of Suzanne Van Voorthuizen from VLK. Please go ahead with your question.

Hi there. Good afternoon, team. A couple of questions from my side. To start off with the product sales that are growing quite nicely again, can you remind us what the seasonality is that we could - should keep in mind for IXIARO and DUKORAL? Which quarters are typically stronger given the travel patterns and what to expect for chikungunya over time? And then I have a follow-up.

Yes. Excellent question. So, I would say, basically, if you look at prior years, you typically see a dip during the summer time. You'll see higher uptake earlier in the year and later in the year. This has to do with the travel pattern to Southeast Asia. You see a seasonality pattern also for DUKORAL given that the single largest market for DUKORAL is Canada and you see typically a strong, strong demand early on in the year. So, at the end of the year, early on in the year, Canadians like to travel to warmer regions when it's cold in Canada. So, basically, this is something that we have seen in prior years. It is extremely difficult to model it precisely because we have seen, I would say, variabilities across the years. But overall, there is a model that we have in place that kind of mimics the seasonality and which of course we also use when we prepare our, you know, year-end projections and latest estimates. But as I said, that's the reason for why we have said we stick entirely to guidance. With regards to chikungunya and your question about seasonality, chikungunya, that's an excellent one too. So, I would say, we have slightly different, I would say, territories for chikungunya as compared to Japanese encephalitis, some are the same, some are very different, and so, there are - our current hypothesis is that they will probably kind of balance each other out. So, we are currently not necessarily modeling yet a strong seasonality profile around chikungunya, but of course, when you are pioneering in a brand new indication with brand new vaccines, you learn along the way. But that's our current hypothesis.

Got it. Okay. That's very helpful. And then maybe continuing on the chik vaccine, you started to invest a little bit in preparation for the launch. Can you remind us what gross margin you believe is feasible on this product and how we should look at your sales and marketing expenses for the launch and the long-term run rate?

Yes. Maybe let me start first of all with a more qualitative statement while Peter is thinking about the quantitative part. So, I would say, basically we are not only investing a little bit, we are investing a lot. I mean, you can see this on our sales and marketing expense line and you will continue seeing this on our marketing - sales and marketing expense line. So, we are investing in launch, and more importantly, market access. There is a lot of work that needs to be done to educate the world around chikungunya and making sure that people understand the medical need, people understand the disease. So, disease awareness and all of that. There is a lot that we are doing right now. In parallel, we are also ramping up our commercial infrastructure primarily in the U.S., but not limited to the U.S. So, these are significant investments that go into this vaccine and of course, the whole topic around margin is a difficult one, and as I said, I'll let Peter develop this further, because we have a brand new chain of custody for chikungunya. You know that chikungunya is live-attenuated and hence a lyophilized vaccine, so which means that we are doing part of the manufacturing in-house, part of the manufacturing with third party, and there are significant economy of scale effect. But Peter, please.

Yes. Thanks, Thomas. So, in terms of the launch cost and overall sales and marketing expense how we think about chikungunya, so as you rightly said, we - you know, Thomas has also said, we significantly invest in the pre-launch activities. I think you will continue to see high sales and marketing investments into chikungunya as we start commercializing the product next year. And then over time, the way we think and in our long-range plan, I think we expect our overall sales and marketing spend in percentage of sales to go back into the regions where it was pre-COVID, but we're probably talking here range €26 million, €27 million. Before that, there will be some other investments, of course, because of the market education, et cetera. In terms of gross margin, similarly, here I think in the first years, and as sales ramp up, we expect some higher cost of goods than what you would have seen in the legacy business before COVID and then, once we get to scale, and as Thomas said, there's a significant economies of scale. As we ramp up the volumes, I think we expect to see at least similar gross margins than what we would have seen with IXIARO and DUKORAL, and I think over time, I think we would even see higher gross margins. Yes.

Got it. All right. Thank you. And then maybe just a last one from my side about Lyme program. Now that the dust has settled on the timelines, and your - given your current cash position and the recent additional 100 million loan facility, can you elaborate on how we should think about your cash burn and run rate from here? And that's it from my side.

Yes. Thanks, Suzanne. So, we will still have significant payments to make on the Lyme program. And I mean, you can see some to extent, of course, in the - on the liability side of our balance sheet what is expected to be there. I think overall, after the 2022 equity offering, we said, we were sufficiently financed at least until the end of the fiscal year 2024. That, of course, still holds true, but we have not provided at this stage an updated guidance on cash burn rate. Something to consider in the future, but right now, we have not given a further guidance. But we are - for the foreseeable future, of course, we're sufficiently financed. And then as we said, we still have appetite to potentially in-license R&D programs and if we were to do that, that might then require additional and dedicated financing, which could also be non-dilutive of course.

Got it. Thank you.

We're now going to proceed with our next question. And the questions come from the line of Max Herrmann from Stifel. Please ask your question.

Great. Thanks very much for taking my questions. Three if I may. Firstly, just on IXIARO and DUKORAL, I know last year you had some capacity constraints. You've obviously highlighted a batch failure in the IXIARO in the first half of this year. And I wonder where you are with capacity compared with demand for both those products. So, that's the first question.

Okay. So, Max, overall, we are right now managing supply-demand quite well. We have here or there still some minor shortages, but overall, on a 80-20 basis, we are fine. The effect that we were talking about, about higher write-offs leading to higher cost of goods were typical, I would say, restart issues after the team had not done IXIARO manufacturing for more than two years. So - but we are back on track with regards to the manufacturing performance here too. So, we are not expecting any further significant issues with supply-demand from a supply perspective, unless, of course, we see further positive surprises on demand side. We are seeing in some countries, an enormous uptake and increase of travel vaccines in general. So, we have to see how this is all going to play out going forward. But thus far, everything is fine.

Great. And then, next couple of questions, one, just - I'm sorry if I missed it, the DoD contract you've talked about, that being imminently signed. I just wondered what the sort of structure of that is. Obviously, you did a more multi-year kind of contract in the past, recent past, and then previously it was more an annual event. So, that was kind of that question. And then finally, just in terms of, I know you've just said that recruitment into the Lyme disease program has no issues. I wondered if you could be more specific a bit on the pediatric element of that recruitment, whether this is in some ways the fact that you're doing over two seasons now is maybe been helpful because I know that was one of the areas that was hardest to recruit into. Thank you.

Yes. Well, I mean on the contract itself, I mean you rightly pointed out, historically we have done single-year contracts, and that has been the standard with DoD. We had one exception which was the 2020, basically you've got option year contracts. It wasn't an exception, it never materialized in reality because it unfortunately coincided with the COVID pandemic, as you know. So - and this gives you the answer what we are expecting. So on the recruitment front itself, we continue with a certain percentage of pediatric within the study which is absolutely in line with how we have designed the protocol and how we have that also the respective analysis and powering. So, there are no issues in the recruitment of the - any of the target populations that we need within the study at this point in time.

Great. Thank you very much.

We have no further questions at this time. I'll hand back to you for closing remarks. Thank you.

Yes. I think that concludes today's call on our half year 2023 results and general corporate and business update. We would like to thank you again for your time today, for your good questions, and for following us so closely and diligently, and we look forward to catching up in the coming months. Thank you so much and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.